Valued at a market cap of $70.8 billion, Constellation Software (TSX:CSU) is among the most popular TSX tech stocks. The large-cap software provider has delivered market-thumping returns to long-term shareholders. CSU stock went public in 2006 and has since returned 20,000% to investors.
It means a $1,000 investment in the TSX tech stock soon after its initial public offering would be worth over $200,000 today. Despite these outsized gains, CSU stock is down 35% from all-time highs, allowing you to buy the dip.
Let’s see why you could own CSU stock at the current valuation.
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The bull case of investing in this TSX tech stock
Constellation Software acquires and manages vertical market software businesses that provide mission-critical solutions to customers in specific industries. These operations generate revenue primarily through software licenses, maintenance fees, professional services, and hardware sales.
In the third quarter (Q3) of 2025, Constellation Software reported revenue of US$2.95 billion, an increase of 16% year over year. In the last three quarters, its total revenue rose 15% to US$8.45 billion.
CSU’s recent leadership transition attracted significant investor attention, which dragged the stock lower. Mark Miller, who co-founded one of Constellation’s first acquisitions in the late 1980s, took over as president after Mark Leonard stepped down. Miller has been with Constellation for over 30 years and previously served as chief operating officer while building the Volaris operating group. Notably, the decentralized management structure that has defined Constellation’s success will remain intact.
In Q3, organic sales rose by 5% which showcases the underlying strength of existing operations beyond acquisitions. Its operating expenses as a percentage of revenue improved to 73% in the third quarter from 74% in the prior year. For the nine months, expenses dropped to 74% of revenue, down from 76%, indicating improved operational efficiency across the portfolio.
Operating cash flow for the nine months totalled US$1.94 billion, exceeding the capital deployed on acquisitions plus dividends. The company’s cash position increased by US$790 million to US$2.77 billion, and debt rose to US$5.01 billion from US$4.17 billion at year-end, primarily reflecting investments, including a stake in Asseco that closed in October. Total assets grew to US$15.33 billion from US$12.85 billion.
Constellation deployed US$955 million on acquisitions during the nine months, continuing its disciplined approach to capital allocation. Miller reaffirmed the company maintains high hurdle rates for investments and has no interest in share buybacks, viewing them as philosophically inconsistent with the business model.
CSU’s vertical market software businesses typically operate with negative working capital, as they collect maintenance payments in advance, allowing for organic growth without requiring additional external funding.
Management believes the current cash and credit capacity is sufficient for foreseeable operations and continued acquisition activity.
Is CSU stock undervalued?
Analysts covering CSU stock forecast revenue to increase from US$10 billion in 2024 to US$21.8 billion in 2029. During this period, adjusted earnings are expected to increase from US$80 per share to US$200 per share.
If CSU stock is priced at 26 times forward earnings, which is in line with its historical average, it should trade around US$5,200 in late 2028, indicating an upside potential of 120% from current levels. Given consensus price targets, CSU stock trades at a 53% discount in November 2025.
